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Some Large U.S. Employers Plan To Reduce Health Benefits for Future Retirees, Survey Finds

With the cost of providing retiree health benefits rising, 10% of large companies say that they eliminated health coverage for future retirees last year, and 20% say that they plan to do so in the next three years, according to a survey of large, private-sector employers that offered retiree health benefits in 2003, the Washington Postreports (Brubaker, Washington Post, 1/15). The survey -- by Frank McArdle, manager of Hewitt Associates' Washington, D.C., research office; Tricia Neuman, a Kaiser Family Foundation vice president and director of its Medicare Policy Project; and colleagues -- includes responses from 408 companies with 1,000 employees or more surveyed between June and September 2003, prior to the passage of the new Medicare legislation (HR 1) (Kaiser Family Foundation/Hewitt Associates release, 1/14). Among those surveyed, the cost to employers of providing retiree health benefits rose 13.7% between 2002 and 2003, from $18.1 billion to $20.6 billion (Young, Cox News/Miami Herald, 1/15). Forty-six percent of companies have placed pre-determined limits on future financial obligations for retiree health, and about 33% have hit their cap or expect to do so within the next one to three years, the survey says (Kaiser Family Foundation/Hewitt Associate release, 1/14). Overall, 38% of companies offered retiree health care plans in 2003, down from 66% in 1988, according to the Boston Globe, (Blanton, Boston Globe, 1/15). The survey notes that the changes mainly affect current workers or new hires, and current retirees are "largely shielded from the cutbacks," according to the Hartford Courant (MacDonald, Hartford Courant, 1/15).

Increased Costs for Retirees

The amount retirees pay toward their health coverage rose an average of 20% for those younger than age 65 and 18% for those older than age 65 in the last year, according to the survey. Also in the last year, 71% of companies increased retiree contributions to premiums, and 57% raised prescription drug copayments or coinsurance (Appleby, USA Today, 1/15). In addition, 32% imposed three-tiered drug copayments, 53% of companies raised general cost-sharing requirements, 26% increased hospital copayments, 34% increased deductibles and 29% increased out-of-pocket spending limits in the last year (Kaiser Family Foundation/Hewitt Associates release, 1/14). Despite their cost-cutting efforts, 12% of surveyed employers said that they improved retiree health coverage in the past year, according to the survey (Colliver, San Francisco Chronicle, 1/15). Eighty-six percent of participating companies said that they will likely increase retirees' premium contributions, and 81% of companies expect to increase cost-sharing obligations (Hartford Courant, 1/15). Further, 65% plan to raise out-of-pocket spending limits, 75% expect to increase deductibles, 69% say they will likely raise physician copayments, 59% will increase hospital copayments, 54% will increase cost-sharing for out-of-network care and 85% will likely increase drug copayments or coinsurance. Ninety-eight percent of surveyed companies -- before passage of the Medicare drug benefit -- said that that they do not plan to eliminate prescription drug coverage in the next three years (Kaiser Family Foundation/Hewitt Associates release, 1/14). Neuman said, "This is something we are seeing with both retirees and employees. It's the same story -- costs are being shifted to both groups" (Vrana/Kemper, Los Angeles Times, 1/15).

Reaction

"Based on current trends, we can expect that fewer retirees will have health coverage in the future, and those who do will be paying more for their health care," Drew Altman, president and CEO of the Kaiser Family Foundation, said (Berestein, San Diego Union-Tribune, 1/15). Altman said, "The bleeding hasn't stopped. I think it is significant that employers are telling us to expect more of the same." A 2002 survey by Hewitt and the Kaiser Family Foundation found that in a two-year period, 13% of companies eliminated health benefits for future retirees and 44% increased retiree contributions to premiums (AP/Anchorage Daily News, 1/14). McArdle added, "Offering retiree health care benefits is a delicate balancing act for employers. Double-digit cost increases, shifting demographics ... global competition and the impact of the bottom line are driving large companies to re-examine their retiree health programs and make changes" (Hartford Courant, 1/15). Despite concerns among some experts that the addition of a prescription drug benefit to Medicare will prompt many employers to drop retiree drug coverage, McArdle said that he does not expect the results of next year's retiree benefits survey to differ much from those in 2003. He said that it will "take time" for companies to determine how they will be affected by the new Medicare law, as well as by the $89 billion subsidy included in the law to encourage employers to retain retiree drug coverage, the AP/News reports. Altman added that the state of the economy will help determine whether employers keep retiree coverage (AP/Anchorage Daily News, 1/14). "Looking to the future, there is concern that competitive pressures, the recent downturn in the economy, the weakening of the labor market and double-digit increases in health care costs may hasten the decline of retiree benefits," the report says (Reuters/Yahoo!, 1/14). The survey is available online.

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